Facts: Husband and Wife were divorced after a seven-year marriage. Prior to the marriage, Wife purchased a lot that would later house the marital residence using $61,000 of her premarital funds. Several years into the marriage, Wife refinanced the mortgage, at which time the deed was placed in the names of both parties. When it divided the marital estate, the trial court awarded that $61,000 down payment to Wife as her separate property. Husband appealed.

On Appeal: The Court of Appeals affirmed the trial court (sort of).

Husband did not move into Wife’s house until the parties were married. The property was titled to Wife until she refinanced the loan on the property several years after the marriage. The parties had purchased an adjoining lot that was unimproved before Wife refinanced the loan on the improved lot, and she decided to consolidate the loan on the land into the existing loan on the house during the refinancing. Wife testified that when she met with the loan officer at the bank, she explained that she owned the property from the time before the parties were married, that she wanted to keep the property in her name, and that she did not want Husband’s name to be on the property. However, the bank officer apparently told Wife it was the bank’s policy that both spouses sign the deed of trust when refinancing, and so Wife ultimately permitted the property to be put into both her and Husband’s names.

In spite of Wife’s testimony that she did not want Husband’s name on the house, she transferred an interest in both lots to Husband with the result that Wife and Husband held title to both lots as tenants by the entirety. The trial court classified this jointly held property as marital property. The trial court, however, treated separately the $61,000 Wife put towards the house when she first purchased the lot. The trial court found that the majority of the debt and payments were made during the marriage, but the $61,000 down payment was from Wife’s premarital savings and therefore should not be treated as marital property.

Husband argues the $61,000 should be designated marital property rather than Wife’s separate property based on the doctrine of transmutation. According to this doctrine, property that was once separate becomes marital property when the one who initially owned the property treats the property as if it were marital property. A common example of transmutation is when property that was once held separately is put into the names of both spouses. When this occurs, there is a rebuttable presumption that the one who held the property separately has made a gift to the marital estate.

The Court concluded:

While there are facts that would support and facts that would not support the transmutation argument, determining that issue is not necessary. Even if the entire house and lot were determined to be marital property, it was subject to equitable division as part of the entire marital estate. Although the trial court awarded [Wife] the $61,000 as her separate property, it could easily have awarded it to her as part of her share of the marital assets. We will consider it marital property. Since [Wife] provided the $61,000 down payment from premarital savings, we conclude that the trial court properly exercised its discretion in awarding [Wife] this $61,000.

In other words, although the Court agreed with Husband on classification solely for the sake of argument, it held the classification didn’t matter because Wife was entitled to the $61,000 as a matter of equitable division.

Dilley v. Dilley (Tennessee Court of Appeals, Middle Section, May 23, 2011).

Information provided by K.O. Herston, Tennessee Divorce Lawyer.